MMRCDISCUSSION PAPER SERIES
No. 334

Fanuc’s Competitive Advantage and the
Revolt of Machine Tool Builders:
A Look at Fanuc’s User and Its User’s Customer Relationships
From a Historical Perspective (1950s–1980s)
Masato ITOHISA
Doctoral Candidate, Graduate School of the University of Tokyo
December 2010

東京大学ものづくり経営研究センター
Manufacturing Management Research Center (MMRC)
Discussion papers are in draft form distributed for purposes of comment and discussion. Contact the author for
permission when reproducing or citing any part of this paper. Copyright is held by the author.
http://merc.e.u-tokyo.ac.jp/mmrc/dp/index.html

Fanuc’s Competitive Advantage andthe Revolt of Machine Tool Builders:A look at Fanuc’s user and its user’s customer relationships froma historical perspective (1950s-1980s1)

Masato ITOHISA
Doctoral Candidate, Graduate school of the University of Tokyo

Abstract
This paper presents a new interpretation regarding the source of Fanuc’s competitive
advantage through conducting a historical analysis of Fanuc’s relationships withmachine tool builders, i.e., Fanuc’s users, and machining factories, i.e., Fanuc’s users’
customers. From the dawn of the NC (Numerical Control) in the 1950s–1960s until theestablishment of the de facto standard in the 1970s, Fanuc’s ability to create
collaborative relationships with its users and its user’s customers functioned as thesource of Fanuc’s competitive advantage. However, with Fanuc continuing its lead into
the 1980s, leading machine tool builders such as Mori Seiki and Yamazaki revolted
against Fanuc’s dominance. In response, Fanuc released a part of their CNC(Computerized Numerical Control) software, Fanuc allowed machine tool builders to
conduct their own customization. Moreover, strong collaborative relationships with theuser’s customers created throughout the 1970s, however, functioned as a deterrent to
the revolt of machine tool builders permitting Fanuc to regain its market share that was
taken by Mitsubishi Electric and Yaskawa Electric in the 1980s.
Key words: Japanese machine tool industry, Fanuc, NC (Numerical Control),Customer’s relationship, Autonomous strategy

1Introduction
This paper attempts to reinterpret the competitive advantage of Japan’s leading
numerical control (NC) manufacturer, Fanuc. It focuses on the relationships between
Fanuc’s users, namely machine tool builders, and the relationship between the user’s
customers, which are the machining firms.
In the early 1950s, the managing director of Fijitsu, Hanozo Omi, established adevelopment team under the leadership of Seiuemon Inaba, an engineer at Fujitsu(andthe future president of Fanuc), to develop NC system. Utilizing a MIT report that
describes the development of the first NC, Fujitsu was able to manufacture Japan’s first
NC turret punch press in 1956. After which, Inaba developed an independent open-loopsystem with an electro-hydraulic stepping motor and an algebraic/arithmetic
interpolation method through past collaborative development with Makino Milling
Machine and Hitachi Seiki. In 1972, Fanuc was made an independent entity, and has
maintained their competitive advantage holding 50~80% of market share in theJapanese market and 40-50% of the world market share with an operating profit of
30-40% of operating profit from time it made the shift to the closed-loop system in 1974
until now.
Although research on Fanuc as a standalone case is still limited (Friedman, 1988;
Kawamura, 2000), past research has only discussed Fanuc’s competitive advantage in
an indirect manner. The reason for this is that the introduction of the NC machine tools
played a key role in the history of the manufacturing system, with Fanuc being thecentral player in the growth of the Japanese machine tool industry. However, Fanuc’s
competitive advantage as explained in past literature has been explained as being arather “obvious” interpretation. For example, the report of the MIT Commission on
Industrial Productivity (1989) states that Fanuc was assigned to be Japan’s only NC
supplier in the policies adopted by Japan’s Ministry of International Trade and Industry(MITI). In other words, Fanuc’s competitive advantage was attained as a result of thedeliberate actions by this government agency 2 . Additionally, the growth of Japan’smachine tool industry has also been attributed to the modular design of the NC and themachine tools. This has not only led to a reduction in realignment costs, but bystandardizing it with Fanuc’s NC system, such costs relating to the education ofoperators and maintenance could also be reduced. The advantages of the modular
design have been recognized by researchers including Finegold et al. (1997) and Chuma(2002), with Chuma (2002) emphasizing that the breakthrough in the Japanesemachine tool industry is through its ability to savor the “power of modularity(Baldwin2and Clark, 2000)“. However, both of these researchers fail to sufficiently consider thecompetitive advantages of Fanuc.
Changes in Fanuc’s domestic market share, which can be used as an indicator tomeasure competitive advantage, however, shows that after Fanuc’s market sharepeaked at 80.7% in 1972, rival manufacturers continued to increase their share,
resulting in a decrease to around 60% by the late 1970s. Despite market share being
further reduced to 50-60% in the 1980s, Fanuc was able to restore its position with
65.7% of the market in 1989. It should be emphasized here that the decline of Fanuc’s
share occurred during periods when MITI’s implemented regulations on themechatronics industry through the Temporary Measures Law for the Advancement of
Designated Electrical and Machinery Industries of 1971-1978 and the Temporary
Measures for the Promotion Information Machinery Law from 1978-85. This does notmatch the assumptions that policies by MITI supported Fanuc’s competitive advantage.
Moreover, it does not indicate why after the lapse of MITI industry policies in 1985, we
can identify Fanuc regaining its market share in 1989. Therefore, the source of Fanuc’s
competitive advantage requires an analysis not only at the macro policy level, but also
requires one to focus on the Fanuc as a specific firm.
Table 1: Market Share of NC Manufacturers in Japan, 1972-1989（Units）
Year

Fanuc

Fanuc's
share

72

1,013

80.7%

43

73
74

1,738
1,739

75.0%
77.4%

64
97

75
76
77

1,226
1,791
2,803

67.6%
59.1%
58.9%

78
79
80

4,589
7,333
11,23683
86
89

Mitsubishi

Yaskawa

NEC

Oki

Hitachiin-house

-

20

19

17

143

-

62
78

82
91

25
1

347
241

112
213
709

15

41
52
90

83
119
95

5
0
0

346
853
1,043

63.6%
59.7%
59.4%

809
1,557
2,436

73
411
1,143

86
117
148

107
209
89

0
0
0

1,548
2,646
3,848

28,13433,237na
50.0% *

na
na

na
5,000 **

46,50065.7%

13,700

3,950

na
na
na

-

na
na

na
na

500

6,100 ***

Source: Data from 1972-80 provided by JMTBA, “Suchi-seigyo kosaku-kikai sangyo jittai chosa”(Survey of aspects of the current NCMT industries); Fanuc’s 1983 and 1986 data from Inaba(1991);
Data for 1989 is from an independent report by Fuji Economics.
：The market share for 1986 is estimated using the description on page 137 of Friedman(1988) .

＊：Yaskawa Electric 1986 sales figures provided through interview, Yaskawa Electric, June 10, 2010.

＊＊

＊＊＊

：The figures for the in-house group from 1972 to 1989 include 11 companies; Okuma, OM, Enshu,

3

Japax, Toshiba Machine etc. However, 1989s data is for Okuma alone.

Section 2 of this paper reviews past literature that has directly targeted Fanuc, bywhich the significance of this paper will be clarified. Sections 3-5 will paint a picture of
the relationships between Fanuc and its users, and its users’ customers over three time
periods; namely, the 1950-60s, 1970s and 1980s. Followingly, after conclusions are
drawn, this paper will discuss the limitations and possible future research in section 6.

The Limitations in theCompetitive Advantages

Past

Interpretations

of

Fanuc’sThrough a review of past literature regarding the source of Fanuc’s competitive
advantage, this section seeks to identify the limitations of those perspectives.
Fanuc is known as a technological leader with much research also pointing to thesource of Fanuc’s competitive advantage being related to technological factors. Firstly,
Kodama (1991) suggests that the source of Fanuc’s competitive advantage lies in thetechnological advantage of its simple electro-hydraulic stepping motor, which ischaracterized by a feedback control system not being needed. In response, Mazzoleni(1997) citing the analysis of Budzilovich (1970) refutes Kodama’s (1991) explanation,
claiming that the source of Fanuc’s competitive advantage cannot lie in its technology
alone as the capabilities of Fanuc’s products are almost similar to the stepping motor ofSuperior Electric (USA), Pratt and S.A.M.M. Mazzoleni (1997) suggests that it is not the
stepping motor nor the design of the open-loop system that is important, but rather thedifference in the popularity of the open-loop system in Japan and America that
influenced the trajectory of technological evolution. In other words, he explains that byadopting the MPU at an early stage, Fanuc development of a flexible CNC targeted atsmall and medium firms became the source of its competitive advantage. However, thispaper does not provide any explanation with regards to why the open-loop system wasso popular in Japan during the infancy of this technology.
Also, Kawamura (2000) 3 like Mazzoleni (1997) shows that Fanuc’s competitive
advantage was in the early adoption of the MPU that led to a reduction in the price of
the NC. However, although all of the Japanese NC suppliers having adopted the MPU
ahead of American suppliers by 1976 may have gained a competitive advantage over its
American competitors, this explanation alone does not sufficiently explain Fanuc’s
competitive advantage.
Shibata, Yano & Kodama (2005) and Shibata (2008) provide a detailed historical4

analysis of Fanuc’s NC technological evolution from the product architecture
perspective (Ulrich, 1995). As this research places its main focus on the theoreticalcontribution to clarifying the pattern of architecture evolution, it does not directly
consider the implications on Fanuc’s competitive advantage. As the source of Fanuc’s
competitive advantage, it does suggest however that through modulating the internal
structure of the NC software, Machine tool builders were able to customize their Fanuc
NC. In other words, Fanuc intended to create this situation “by not asking but making it
for the users”. However, although these policies may have a positive effect for themachine tool industry as a whole, looking at Fanuc as an individual company
essentially means that they could lose their competitive advantage if they make aserious mistake. That is that if only Fanuc could understand the needs of machine toolbuilders, their reliance on Fanuc would grow, but if machine tool builders could
experience all the know-how by themselves, their reliance on Fanuc would decrease.
As explained above, most of the past literature has explained Fanuc’s competitive
advantage has been mainly attained through technological aspects4.

However, if you

consider the technological factors in the case of the machine tool industry, it is crucial toconsider the relationship with the machine tool builders as the user and therelationship with the machining factories as the user’s customers. This paper seeks toclarify the source of Fanuc’s competitive advantage through focusing on the strategic
actions at a firm level and by also conducting a historical analysis on the two types ofinter-firm relationships; namely, the relationships of NC manufacturers and users andthat of Fanuc and its user’s customers. (Ref. Figure 1) The reason for focusing on these
two types of inter-firm relationships can be summarized into two key points. Firstly, theknow-how of machining is held by machine tool builders with machining factories
possessing the knowledge of machine operations. Fanuc must effectively adopt thisknowledge in the development of new NC systems. However, machine tool builders andmachining factories alike do not appreciate the risk that is involved in their in-house
knowledge being leaked to other competitors. It can therefore be said that the ability toeffectively manage the relationship with users and users’ customers while effectively
dealing with the above dilemma is the key to creating a sustainable competitive
advantage. Secondly, the trajectory of technological evolution is frequently defined by
the interaction with users (Clark, 1985). As such, focusing on the relationship withcustomers has the potential to reveal the factors that define the technological evolutionof Fanuc.
This paper therefore emphasizes the actions of Fanuc as an individual firm andthrough a historic study of the inter-firm relationships5 between the NC manufacturers
5and the users, and the NC manufacturers and the user’s, customers will clarify thesource of Fanuc’s advantage. (Ref. Figure 1)
Figure 1: The triangular relationships of the NC machine tool industry
NC manufacturers

Users(Machine tool builders)User’s customers(Machining factories）
material flow

information flow

The dawn of NC technologies in Japan：1950’s-1960’s
After the development of the world’s first NC machine tool by Parsons and MIT Servo
Lab in 1952, Fujitsu was the first privately-owned firm in Japan to develop a similar
NC in 1956. Fujitsu’s managing director, Hanzo Omi, foreseeing the arrival of the “3C
generation (communication, computer, control)”, made the decision to enter thecomputer and control business in addition to its communication tool business. At thattime, Seiuemon Inaba, who was in his early 30s, was selected to lead the development
teams of the control business. Inaba was successful in the development of NC machine
tools through the use of the parametron for its calculation, Sanyo Electric’s traditional
DC motor as a servomotor and a Wiedemann made turret punch press for its machinetool. Participants from organizations such as the University of Tokyo, Tokyo Institute ofTechnology, Makino Milling Machine and Hitachi Seiki were invited to examine thecompleted NC machine tool in action. This resulted in the potential of NC technologies
being recognized in Japan despite the needs not being completely met in terms of
performance6.
Inaba had to somehow commercialize this new NC technology. However, there werean inumerable number of problems that needed to be solved in order for it to be sold. A
6request that came at that particular time from Makino Milling Machine to collaborately
develop the NC milling machine. To be exact, in March of 1957, Makino Milling
Machine’s president, Tunezo Makino, approached Inaba asking him to assist in the
production of a NC machine tool for the international machine tool exhibition held inOsaka the following year7. The background of that request is said to be that while
visiting India as the chairman of the JMTBA, Makino received questions regarding
Japan’s NC technologies from other board directors and in response ended up making apromise that Japan would also exhibit a NC machine tool at the international machine
tool exhibition the following year. With a development lead time of one year and abudget of 5 million yen, the technological issue was the contour control of the millingmachine which was remarkably more difficult in comparison to the position control of
the turret punch press. The engineers of both Fujitsu and Makino Milling Machinespend many days in collaboration to fix the various problems. These results of suchlaborious efforts led to a NC machine being exhibited at the third international machine
tool exhibition held in Osaka in April 1958.
After the international machine tool exhibition, there was a request from Hitachi
Seiki to join in a collaborative development project of the NC milling machine which
was to be delivered to Mitsubishi Heavy Industries’ Nagoya aerospace factory. This was
the first useable machine tool to be created in Japan. The general manager of
Mitsubishi Heavy Industries aerospace department, Takaharu Moriya, decided to
implement the NC machine tool based on the logic that “in line with the Mitsubishi’s
name, the fighter jet F86 should be made with the very latest technology “. As such,
focus should not be on a marginally higher cost8. With that desire, they made a request
to Hitachi Seiki. The purpose for this project was to develop a NC milling machine that
could deal with a series of complex metal components that were required for an
airplane’s wing to be connected to the body. Fujitsu pursued this development with
Hitachi Seiki and Mitsubishi Heavy Industries as a three way partnership. However,
the NC milling machine that was delivered in January of 1959 possessed a key
weakness in terms of electrical noise. There were circumstances when even a motorbike
riding outside the factory could cause the machine to stop completely. In addition, theservomotor circuit used an average of one hundred bulbs with one bulb breaking every
month. In response to these potential problems, engineers were stationed at Mitsubishi
Heavy Industries’ factory for half a year following the implementation to address any
problems that may arise.
Following this, an order was received from Fujitsu Heavy Industries for the delivery
of a NC milling machine to manufacture aerospace components. Out of one year, two7

hundred days of the person-in-change at Fujitsu was dedicated to the NC millingmachine project. Despite that, out of a total of 66 jet planes, only about 40 planes wereable to be made using the NC milling machine with the rest being produce using a
profile milling machine.
As explained above, NC development during its infancy was filled with numerous
failures. However, we see that Fujitsu was able to obtain the know-how relating to thetechnologicalfusionoftheelectricmechanism

throughthecollaborative

problem-solving with its users and its user’s customers. Inaba made the following
remarks regarding this point.
“The best result from this collaborative research was to be able to learn how tocooperate with specialist from both the mechanical and electrical engineering fields.
With electrical engineers being covered in oil while grappling with the machine andmechanical engineers being engrossed in the oscilloscope, a new technological field
was being created without a distinction between engineers. It is not an
exaggeration to say that this was a great contribution to Fanuc’s consequent
improvement of NC technologies9”
Secondly, by being on the shop floor of the machining factories, Fanuc was able toregulate the direction of technological exploration to overcome the weakness of theclose-loop system that was said to be caused by the DC motor and the position detection
device. There were also problems with the calculation capabilities at that time which
was not reliable due to the complexities of the circuit layout. To deal with this, research
was continued in the attempt to simplify the control circuit and the servo system.
With the know-how attained from the fusion of mechanics and electronics as well as
the research results that led to the simplification of the NC, the development of thepulse motor that employs a revolving switch construct and the electro-hydraulicstepping motor which could increase the total amount of output was achieved. Also,with the intention of simplifying the pulse distribution circuit, collaboration with the
University of Tokyo led to the invention of the pulse distribution circuit using an
algebraic/arithmetic interpolation method. Fanuc’s independent open-loop system wascreated based on both of these technologies. Moreover, as the transistor started toprevail as the main calculation tool, the probability of machine breakdown reduced
greatly, leading to the completion of the NC that was able to withstand the demands ofthe factory floor.
In 1960, Fujitsu’s open-loop NC was sold as a Hitachi Seiki NC milling machine. After8which, Fujitsu began to strengthen its NC sales team. However, in the first half of the
1960s, Fujitsu had to deal with two issues relating to the input interface of the NC
program and the price of the NC. Firstly, the input interface required operators on themachining factory floor to make the necessary calculations for the pulse row, demanding
a substantial amount of work10. For example, to process a die and mould that requires ahigh level of precision down to the micron, calculations for the pulse row needed to be
frequently revised to match any differences with the tool. With regards to price, the1962 Fanuc 220, which uses a diode instead of a transistor, commanded a total sales
price of roughly 10 million yen, a price much greater than the machine tool alone.
Therefore, even though this was an open-loop system, it was not a cheap NC for small
and medium sized firms.
The source of a uniform solution for the NC program input interface and the price of
the NC were provided by one lead user; namely, Makino Milling Machine. First, Makino
Milling Machine presented an idea of the “cutter offset function” to deal with therequired adjustments. This function adjusts the gap between the processed goods andthe tool by using low resistance tools on the machining factory floor. Fujitsu incollaborative research with Makino Milling Machine was able to absorb this know-how
and apply within the NC. At this time, Fujitsu was permitted to market this general
purpose device to other firms 11 . In another words, through the use of Fanuc’s
multi-purpose NC, the know-how of machine tool builders such as Makino Milling
Machine spilled over to other machine tool builders. New-entrant machine tool builders
such as Yamazaki and Mori Seiki therefore succeeded through the mass production ofmachine tools and were able to better utilize the merits of this spillover.
To deal with the pricing issue, Makino Milling Machine requested that Fujitsu limit
the functions of the device and downsize the product to reduce the overall cost. A
proposal to overcome the problems of the input interface was to remove the curvilinear
processing function and replace it with a straight line processing function. Also, thecalculation device was also all-IC to achieve a reduction in the size. With thesimplification and downsizing of the NC functions (Ref. Table 1), the price of the Fanuc
260 that was sold in 1966 was reduced by roughly 2 million yen.

9

Table 1: A Comparison of FANUC 220 and 260
Spec
Number of control axis

FANUC 220
3 axis (Only 2
simultaneously)

FANUC 260
3 axis (Only 2
simultaneously)

Maximum Dimensions

straight line：670000mm

straight line：9999.99mm

Minimum Settings
Cutter Offset
Weightcircle radius：3350000mm
0.005mm49.995mm
700kg

－
350kg

Price

about 10 million yen

about 2 million yen

0.01mmSource: Created by the author based on a Makino Machine Milling pamphlet.

With this change, small and medium sized firms were gradually able to obtain thisproduct and sales in 1965 of 60 units increased to 388 units in 1968 and 1,683 units in1969（Mazzoleni, 1997）. At this time, the assumption of an NC was that a millingmachine could be changed to accommodate the needs of the market, which was for a NC
to be a lathe (Shibata & Kodama, 2009). The growth of the NC after this started with
the NC lathe was targeted at small to medium sized firms12.
Figure 2: The change in units of NC across different models, 1970-1991
30,000Lathe
MillingMC25,000Drilling
Grinding

Boring
SPM

20,00015,00010,0005,000
070 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91
Source: Created by the author based on JMTBA, “Kosaku-kikai tokei yoran, 1981 and 1991” (Machine
tool statistics handbook).

As described above, the role of Fujitsu’s users and the user’s customers in the dawn of10

the NC helped to collaboratively deal with the problems that this new innovation
presented. At this time, they provided an important indication for the direction offurther technological exploration. Inaba himself also emphasized the relationships withsuch users and the user’s customers. Inaba’s team that was charged with the task ofdeveloping the NC was upsized for a section to a formal division of the company and its
sales was also separated. Inaba was assigned to a concurrent post both as the managing
director of technology and sales. Through this, he was able to experience first hand theimportance of maintaining a relationship with the user and correctly identifying theirneeds13. Moreover, the poor condition of the NC as a new electronic product were not left
in the hands of machine tool builders, but were handle by Fujitsu alone14. This resulted
in Fanuc’s ability to develop a service network of end users nationally and globally whileabsorbing the needs of its clients contributed to the further development of NC. In
addition, other machine tool builders were able to cope with technological changes bybuying a multi-purpose NC from Fanuc. The relationships described here isconceptualized and displayed below in Figure 3.
Figure 3: A model of the source of Fanuc’s competitive advantage: A perspective from therelationships with users and user’s customers in the dawn of the NC.
Fanuc

Technological
Spill‐overTechnological
Spill‐overusers
OthersMakinoHitachi
Seiki

OthersOtherssmall tomediumsized firms

Mitsubishi
Heavy

Othersuser’scustomers

material flow

information flow

11

Technological Change and the Establishment of the De Facto
Standard in the 1970s
Fujitsu’s NC division under the leadership of Inaba was finally able to produce a
profit in 1965. With the expansion of the market, it became a highly profitable division
within Fujitsu. In 1972, Fujitsu’s board of directors decided to create a separate entity
leading to the birth of Fanuc15.
Although Fanuc was able to maintain continued growth, several major issues arose
within the firm. These issues led to a rapid change in Fanuc’s reputation with regards tothe electro-hydraulic stepping motor which is the core technology of Fanuc’s NC. A
cause of this was Fanuc’s motor inability to respond to the needs of a faster NC machine
tool16. As such, its users, Makino Machine Milling and Hitachi Seiki, strongly requesteda shift to the DC servomotor. Additionally, Siemens, who had the sales rights to produce
and sell the electro-hydraulic stepping motor in Europe, also recognized the change intheir market and worked to cause a shift towards the DC servomotor. The NC machine
tool operators of the small and medium sized firms also had complaints about theelectro-hydraulic stepping motor as it required them to change the hydraulic fluid.
The feedback from its users and its user’s customers became the trigger17 for Fanuc’spurchase of the right to produce and sell (1st July 1974 ~ 1st August 1984) the DC
servomotor from Gettys Manufacturing on the 3rd of June 1974. This change also meantthat the control method had to shift from an open-loop system to a closed-loop system18.
At the end of September 1974, all of Fanuc’s NC has changed to the DC servomotor.
Fanuc also changed its fundamental technology innovation strategy to one focused on
open innovation. Fanuc was the leader of the open-loop NC system, but the closed-loopsystem which included such functions as the DC motor and sensor technology had otherinternational firms that held a technological advantage. Fanuc, starting with apartnership with Gettys Manufacturing, continued to foster technological partnerships
with several oversea manufacturers to increase the standard of technology required forthe closed-loop system (Ref. Table 2).

12

Table 2: Fanuc’s major NC technology licensing (1970s)
company
GettysGettysFarrand Industries
Inductosyn
HeidenhaincountryUSAUSA

licenced technology
DC servomotor
DC spindle motor

contract term
1974-1984
1975-1986USA

position transducer

1976-1986

West Germany

error compensation device

1979-1988

Source: Created by the author based on financial report of Fanuc, 1981.

This orientation towards open innovation allowed Fanuc to become the forerunner inchoosing to shift from the hard-wired NC to the soft-wired NC system. Fanuc having
identified the actions of Intel, which was established in 1968, adopted Intel’s MPU (8bit)
in its FANUC 2000c. With the sale of the world’s first one chip MPU Intel 8086 (16bit) in
1978, Fanuc made the decision to adopt this technology before any firm within thecomputer industry19. From that the FANUC SYSTEM6 was developed and first sold in
1979. This FANUC SYSTEM6 would be recognized at the de facto standard for CNCs
within the Japanese machine tool industry20. Through this, machine tool builders andend users were able to use the custom macro to define the formula for the tool path.
Other NC competitors also based their programs on the FANUC SYSTEM6 custom
macro.
To cope with technological change, Fanuc continued to expand its overseas presencein addition to increasing the number of service centers within Japan in 1970 (Ref. Table
3). At that time, machine tool builders that began to gradually export overseas had
obvious limitations in terms of the after-service they could provide by themselves.
Fanuc on their behalf expanded its service network with many leading machine toolbuilders and other users thankful about this move21. From Fanuc’s perspective, being
able to directly connect with the user’s customer held the merit of attaining information
about future desires and requests for the future development of the NC machine tool.
Based on this information, Fanuc continued to develop new products one after theother 22 . Inaba described the significance of constructing a service network in thefollowing way.
“The trust of the end user is earned through providing perfect service. To do this,any NC that has the Fanuc brand, irrespective of who sold the device, must be
maintained by Fanuc. That is the rule23.”

13

Table 3: Fanuc’s Local Subsidiaries
company
General Numeric Corporation
Fanuc Oceania Pty Ltd
Fanuc USA Corporation
Korea Numeric Corporation
Fanuc France S.A.
Fanuc Singapore Pte Ltd
Fanuc Germany GmbH
Fanuc UK Limited
Fanuc-Machinex Ltd
Fanuc Sweden A.B.
Fanuc Mechatronics S.A.
GMFanuc Robotics Corporation

foundation
1976
1976
1977
1978
1978
1979
1980
1980
1981
1981
1982
1982

Location
Chicago, USA
Sydney, Australia
Chicago, USA
Changwon, Korea
Pris, France
Singapore
Hilden, Germany
London, UK
Sofija, Bulgar
Stockholm, Sweden
Echternach, Luxembourg
Michigan, USA

Source: Inaba(1982), pp107, 113.

The 1970s experienced a wave of technological change that could not always be easily
acknowledged such as the technological shift away from the electro-hydraulic stepping
motor. At each of those times, the trigger for a change in technology was from thefeedback of its users and the user’s customers. After the shift to the DC motor, Fanuc
adopted an open innovation orientation whereby external technology was aggressively
implemented. The result was the FANUC SYSTEM6 which is said to be the CNC de
facto of Japan’s machine tool industry. On the other hand, Fanuc continued to establish
a service network globally to cope with the continually increasing demand of NC
machine tools. The establishment of local subsidiaries provided a base on whichmachine tool builders could export its products to areas that their own network could
not provide the required after service. From Fanuc’s perspective, being connected to theuser’s customers allowed it to absorb the various needs that they had.

The Revolt of Leading Machine Tool Builders: 1980s
During the technological changes of the 1970s, emergent machine tool builders suchas Yamazaki and Mori Seiki expanded their market share through the sale of the NC
machine tools (Friedman, 1988). They purchased Fanuc’s multi-purpose NC andactively sold NC machine tools with an attached Fanuc device in oversea markets andto small and medium sized firms. In the early 1980s, Mori Seiki, Yamazaki and Okuma
held the top three positions in NC lathes (Ref. Table 4).

14

Table 4: The Market Share of NC Turret Lathes from 1983 to 1985
1983
year
rank
company
units share
1 Mori Seiki
1,703 17.0%
2 Yamazaki
1,603 16.0%
3 Okuma
1,403 14.0%
4 Miyano801
8.0%
5 Hitachi Seiki
501
5.0%
total top5
6,011 60.0%
total
10,018 100.0%

companyMori Seiki
Okuma
Yamazaki
MiyanoHitachi Seiki
top5
total

1984
units share
2,648 16.0%
2,648 16.0%
2,483 15.0%
1,324
8.0%
1,324
8.0%
10,427 63.0%
16,550 100.0%

copanyOkuma
Mori Seiki
Yamazaki
MiyanoHitachi Seiki
top5
total

1985
units share
3,256 17.0%
3,064 16.0%
2,873 15.0%
1,532
8.0%
1,341
7.0%
12,066 63.0%
19,084 100.0%

Source: Nikkei sangyo shinbun(Nikkei industrial paper)

In a generation where the need for the NC continued to increase, the top threemachine tool builders faced a strategic dilemma with Fanuc having set the de facto
standard and continued to hold a run away lead over its competitors. The NC is an
important core module that determines the machine tools capability. Therefore,
machine tool builders wanted the ability to customize their NC to differentiatethemselves from other competitors. However, as Fanuc manufactures a multi-purpose
NC, they were not able to completely respond to those requests. Even if they did
respond to those requests, there was still a possibility that a user’s know-how could be
leaked to other competitors24. In light of this reality, Mori Seiki, Yamazaki, Okuma
employed the policies below to reduce their reliance on Fanuc25.
Figure 4: Autonomous strategies employed by leading machine tool builders
Multi‐suppliers Strategy
Fanuc

Yask
awa

Mis
tubi
shi

MAZATROL Design

In‐house Strategy

Mitsubishi

Okuma
Mori Seiki

Yamazakicustomers(machine parts)

customers(machine parts)

customers(machine parts/
die press)

Mori Seiki’s multi-suppliers strategy
In opposition to Fanuc’s dominance, Mori Seiki strategically employed Yaskawa
15

Electric’s YASNAC and Mitsubishi Electric’s MELDAS. By purchasing from two othersuppliers, a supplier’s power is weaken (Porter, 1980) and as such Mori Seiki could
comparatively increase its bargaining power. With regards to NC customization,
YASNAC allowed for more functions to be customizable26. However, from Mori Seiki’s
perspective, although they were able to determine the path of NC using YASNAC, they
were aware of the high risk of placing their dependence on it. Fanuc therefore continued
to hold the position as the main supplier. Incidentally, the cost of a customized YASNAC
led to a cost increase in comparison to Fanuc’s NC27.
Yamazaki’s “MAZATROL design”
In 1981, Yamazaki collaboratively developed the NC MAZATROL with Mitsubishi
Electric and decided to make a clean break from Fanuc. MAZATROL is an interactive
NC with a dialogue function, not the G-code that has been used until now. Therefore,
this input interface is recognized as being user friendly allowing new operators to utilize
this system with ease. By developing a close relationship with Mitsubishi Electric, the
CNC software permitted Yamazaki to improve the key functions required for theirmachine tool device. However, this interactive NC was still limited in terms of thenumber of complex processes that it could conduct. Therefore experienced operators
tended to favor the G-code as it allowed for more freedom in terms of path settings.
However, Yamazaki’s shift to Mitsubishi Electric as their main supplier resulted in
Fanuc’s share being reduced.
.
Okuma’s In-house Strategy:
From the dawn of the NC in the 1960s, Okuma has chosen to keep the manufacturingof their NC systems in-house. Okuma favored the closed-loop system over Fanuc’s
open-loop system because of the additional absolute positioning function. Okuma
developed their original NC (OSP) as part of their differentiation strategy. It also
responded well to the wave of technological changes such as the adoption of the MPU ayear after Fanuc in 1976 and the development of a multi-processor CNC device in 1980.
From an early stage, Okuma emphasized the “total responsiveness” of the machine tool
to include the NC, sensor, actuator and other processing technologies. Although Okuma
tried to sell this NC outside the organization, competitors were not open to the idea as
Okuma was recognized as being a machine tool manufacturer28. As such, the use of
Okuma’s NC was restricted to Okuma and its subsidiaries.
The revolt of the leading machine tool builders became a trend that Fanuc could not
16

ignore. Mitsubishi Electric, who sold the MAZATROL, sold it as the MELDAS to othermachine tool builders and continued to increase their market share along with Yaskawa
Electric29. To respond to the requests for flexibility and more extensive customization,
Fanuc released a part of its NC software that had been kept black-box so far. In otherwords, by releasing the API (Application Interface), machine tool builders were able toindependently customize their NC. In addition, the C-language library tool kit was also
released allowing easier customization30.
By making public a part of their NC software, Makino Milling Machining for example
could place an independent Makino controller called the GI control and a screen on the
NC to allow faster processing. Makino created an independent function through aninterchange with the Fanuc NC using an external I/O or API, while the software for the
GI control was created in-house31. Although other machine tool builders may not havebeen able to customize their NC to that of Makino, they were now able to add various
functions specific to the user. This led to success in linking Fanuc to the machine toolbuilders.
On the other hand, automobile manufacturers shifted from a profile to NC machine
tools in the early 1980s. For example, along with Honda’s implementation of CATIA, a
3DCAD in 1984, they continued to pursue further NC in the form of specialized machinethat could profess the “clay to die” 32. Also, other automobile manufacturers following
the lead of Toyota emphasized the compatibility of a customized macro and therefore
made requests to machine tool builders to use only Fanuc products33. As a result, NC
manufacturers that have minimal share within those factories were excluded from theautomobile factory floor. In addition, it can be said that the success of Fanuc products isdependent on Fanuc’s ability to create trust-based relationships between the machining
factories which are its user’s customers while maintaining a service network as well34.
The late 1980s saw a period where the amount of Japanese machine tool exports
continued to rise, with exports worth 1.12 billion dollars in 1980, to 1.66 billion dollars
in 1985 and 3.1 billion dollars in 1989. During this time, Fanuc was able to utilize its
network of subsidiaries that it had setup in the late 1970s ahead of other competingfirms. Small and medium machine tool builders especially chose to continue using
Fanuc’s NC because of its reliable after service that could be provided to their end
users35.
In summary, the 1980s was a decade where leading machine tool builders wereconcerned about Fanuc’s de facto standard. To reduce their reliance on Fanuc, several
firms rallied against the use of Fanuc’s devices. In response, Fanuc released somedetails of its CNC software which allowed for the customization of the NC to the17independent specifications of the machine tool builders. Moreover, the user’s customers
especially within the automobile industry and oversea factories played a key role indeterring the revolt of the leading machine tool builders. Through this, Fanuc was able
to recover its market share in Japan holding 65.7% in 1989, up from a sharp decrease toroughly 50% in the early 1980s.

Conclusions and Discussions
Past literature has explained that the source of Fanuc’s competitive advantage wasobtained through the MITI industrial policy and Fanuc’s technological advantages.
However, this paper uses a historical approach to reinterpret the source of Fanuc’s
competitive advantage by focusing on the relationship of Fanuc’s users, namely themachine tool builders and the user’s customers, the machining factories.
Firstly, from the dawn of the NC to the establishment of Fanuc’s de facto standard,
the source of Fanuc’s competitive advantage lay in its ability to maintain cooperative
relationships between its users and the user’s customers. In collaboration with key lead
users, Makino Milling Machining and Hitachi Seiki, who held the know-how regarding
processing technologies, Fanuc was able to commence production of the NC at an earlystage of the technology’s evolution process. Collaborative problem solving played amajor role in the creation of a long-term collaborate relationship, with these two firms
helping to direct the innovation of NC technologies based on their user’s needs. As
Fanuc chose to bear the cost of development, they were permitted to market any
technological developments as a multi-purpose device to other firms. Also, with the
decline of the electro-hydraulic stepping motor, these users’ request functioned as thetrigger for the following changes in technology. Fanuc also continued to strengthen theircollaborative relationships with the user’s customers by constructing a network ofservice centers both in Japan and globally as well. Machine tool builders welcomed thisas it was a period where exports overseas began to gradually increase.
In 1979, Fanuc established the de facto standard with the SYSTEM6 leading to anincrease in Fanuc’s brand as a NC supplier. A proportion of leading machine toolbuilders began to adopt autonomous strategies to diminish the reliance on Fanuc as asupplier. Mori Seiki’s multi-suppliers strategy and Yamazaki MAZATROL design are
examples of this. In responses to this, Fanuc demonstrated their cooperation withmachine tool builders through releasing a part of their CNC software which it had kept
black-box until then. Also, as user’s customers mainly consisting of automobile
manufacturers requested a Fanuc device to be used, Fanuc was able to regain the share18

that it had lost to rival manufacturers such as Mitsubishi Electric and Yaskawa Electricin the late 1980s. This relationship with the user’s customers became the source of
Fanuc’s competitive advantage as it restricted the revolt of the users.
The paragraphs above describe the conclusion of this paper, but the reality of theJapanese NC industry is that it is made up of few NC suppliers, 1,332 machine toolbuilders36 of different sized and a few thousand machining factories. In other words,
NC suppliers have links with an extremely broad range of industries. With that
understanding, this paper focused on Fanuc as a firm within all of these inter-firm
networks. This paper therefore only explores a proportion of the relationships between
leading machine tool builders and the end user. As such, there maybe other importantdetails included within Fanuc’s relationships with small and medium sized
manufacturers that could explain the source of Fanuc’s competitive advantage.
Also, in order to discuss Fanuc’s competitive advantage in detail, a similar analysis
and comparison with other NC suppliers such as Mitsubishi Electric, Yaskawa Electricand the in-house manufacturer Okuma. This is a point to consider in future research.
From preliminary interviews, however, we identify that although Mitsubishi Electric
took an offensive approach to Fanuc in the early and middle 1980s, they were not able
to build a service network like Fanuc because of a lack of manpower in theirrelationships with Yamazaki. Yaskawa Electric positioned as a supplier ofsemi-customized NC did not allow itself to cope with the wide range of requests and assuch their client were restricted to Mori Seiki, Matsuura Machining and a small
number of other firms. On the other hand, Okuma sought to gain a competitive
advantage through positioning itself as a machine tool that allows the pursuit oftechnology from the perspective of total responsibility. For example, Okuma being alead user of the double column machine center was able to create a collaborative
relationship with Fuji Technica, a pressed die and mold manufacturer. Fuji Technica
sharing their technological needs with Okuma and through working with them in the
problem solving phase as well allowed them to market the research results to otherfirms. This resulted in Okuma holding most of the market share in terms of double
column machine center sales.
This paper also contributes to the theoretical discussion of Pfeffer and Salancik (1978)
in regards to the importance of the resource dependent perspective of inter-firm
relationships research. Firstly, it explores the mechanism regarding how a component
supplier like Fanuc gains power over time. Past research about inter-firm relationships
often takes a comparatively static approach by using tools such as network analysis.
The example of Fanuc as described in this paper adopts a dynamic perspective to19

exploring one mechanism needed to tackle the problem of how component suppliers gain
power. Namely, by creating cooperative relationships with the user and the user’s
customers, the component supplier is able to absorb their know-how and is therefore
able to utilize it in the manufacturing of their products. Also, another mechanism exists
which allows suppliers to gain power through the achievement of economies of scale byselling a multi-purpose component to other users. Secondly, the bargaining power that
this component supplier holds from the existence of this mechanism may face a latentproblem at a time when it gets too big. This is because firms want to break its relianceon one firm and will adopt autonomous strategies. From the perspective of thecomponent supplier, however, the autonomy of the user should be avoided and if
possible through the creation of a condition whereby clients are reliant on the supplier
will allow it to maintain it’s the power. In that situation, there is a possibility that firms
can use the power of the user’s customer as a counter power to the autonomous
strategies adopted by the users.

1

In the 1980s, production of Japanese Machine tool industry overwhelmed US and Germany andmany researchers, for example Johnson (1982) and Porter (1990), gave interpretations to such
“Japanese miracle”. This paper focuses on this period and provides new perspectives to the competitive
advantages of Fanuc, which has been a leading NC manufacturer in the Japanese machine toolindustry. The main issue will stand on the relationship of Fanuc’s user (machine tool builders) and its
user’s customers (machining factories).
2 Carlsson (1989), Vogel (1984), Porter (1980), Kotha and Nair(1995) and many other researchers
suggest that Fanuc’s competitive advantage is by MITI industrial policies.
3 Kawamura’s (2000) research clarifies why Japanese NC suppliers adopted the MPU ahead of its
American competitors. The reason is that in America, the 5 axis and 7 axis NC milling machine wasmain stream, there was a need for a mini-computer that could do the complicated calculations.
However, as the 2 axis lathe was popular it could perform the calculations even on a cheap MPU. This
resulted in a fall of the price of NC.
4 Other research include Yonekura (1991), who discussed the merits of focusing its resources when
Fanuc was granted independence from Fujitsu and Shibata and Kodama (2004) that indicated theimportance of organizational flexibility to accommodate technological change.
5 This paper’s research perspective is closes to that of Matsuzaki (2000). That paper indicates that
Fanuc’s competitive advantage lies in its ability to absorb the know-how of machine tool builders andto sell the multi-purpose NC to the end user. However, this research only explains the establishment of
Fanuc’s competitive advantage at one point, it does not mention anything about how Fanuc was able tomaintain its competitive advantages.
6 Inaba (1982), pp21-22.
7 Inaba (1982), pp23
8 Kano (1983), pp47.
9 Inaba (1982), pp29-30.
10 In the first half of the 1960s, there were several defects with regards to operation. At that time,
there were more automatic lathes using a pin ball panel.
11 Interview, Makino Milling Machine, June 14, 2010.
12 The lack of laborers in the period of high economic growth from the middle of the 1960 was a serious
problem. It was a generation where while the salaries of skilled workers, there were a lack of juniorhigh school and high school graduates known as the “golden egg”. This was especially a serious
problem for small and medium sized firms. The purpose of implementing the NC lathe was not only to20

help skilled workers achieve the level of precision, but also the relatively user-friendly NC lathes could
deal with a lack in the number of available workers. It should be noted that at this time small firmsthat employs less than 20 people are not included. The use of NC machine tools in small sized firms
became more popular from the late 1980s. (Interview, retired person of Kuaki, June 23, 2010.)
13 All Fanuc’s executives have worked in sales as determined by the company’s policy.
14 Kano (1983), pp177.
15 The official company name from 1972 to 1982 was Fujitsu-Fanuc.
16 Interview, Makino Milling Machine, June 14, 2010.
17 Before changing to the DC servomotor, Inaba last challenge was to start developing a high-powerelectric motor that would not use any hydraulics. The dateline was the end of May. The prototype thatwas created vibrated too much and still needed a lot more work for its completion. In light of this,Inaba decided make the shift to the DC servomotor.
18 Although other competitors such as Okuma, Mitsubishi Electric and Oki Electric also adopted theclosed-loop system, the market share of Fanuc’s NC continued to rise.
19 The recently released Intel 8086 still had problems with its reliability. The 8086 passed the standalone test, but problems arose when it was placed inside the NC system which had a higher voltage
and temperature. In response, Intel sent 4 engineers to Fanuc’s Nino factory and was able to solve theproblems through the progressive improvements over multiple tests. (Okuda, 2000)
20 Interview, a president of CADCAM manufacturer, May 17, 2010. Interview, Makino Milling
Machine, June 14, 2010. Interview, a president of machine tool trading company, January 25, 2010.
21 Fanuc committed to its stance of carrying out the servicing of its machines in the European markets
as well. This is in spite of Siemens being a sales proxy in these markets.
22 Kano (1983), pp178
23 Kano (1983), pp178
24 If a firm had a request for a new function, they could gain the sole right to use the functions if they
provide a detailed method of how to meet their requirements and if the bore the cost of thedevelopment. However, if the detailed method solving was developed collaboratively, Fanuc would holdthe right to sell it on to other firms as part of their multi-purpose device.
25 Other firms include Hitachi Seiki which adopted a form of the multi-suppliers strategy using both
Fanuc’s multi-purpose NC and its own in-house NC. On the other hand, Makino Milling Machine
continued its collaboration with Fanuc. The reason is that Makino thought it was better to choose apath of collaboration rather than conflict. Moreover, the “Fanuc” brand was not displayed on the NC
that was purchased by Makino. They instead had the Makino’s original “Professional” brand displayed.
Fanuc permitted this because of the weight of its relationship with Makino since the dawn of the NC.
(Interview, Makino Milling Machine, June 14, 2010)
26 Interview, Yaskawa Electric, June 10, 2010.
27 Interview, Yaskawa Electric, June 10, 2010.
28 Interview, Okuma, May 19, 2010.
29 We have identified the MELDAS 300 series with a 32bit CPU that was sold in 1986 had aparticularly high capabilities, leading to much of Fanuc’s market share being stolen (Interview, apresident of CADCAM manufacturer, May 17, 2010).
30 Shibata and Kodama (2009), pp32.
31 Interview, Makino Milling Machine, June 14, 2010.
32 Interview, Honda, April 16, 2004.
33 If the generation of the NC is different, the custom macro was not compatible. However, many end
users wanted it to be Fanuc specific. (Interview, retired person of Kuaki, June 23, 2010)34 Japanese, German and American machine tool builders came together to show their resistance toMolins’ lawsuit that dealt with the Flexible Manufacturing System in partnership with many of the
major automobile manufacturers and industrial machine manufacturers. In response, Fanuc choose toquickly solve this problem by paying a settlement of roughly 2 million dollars (Hosokawa, 2007). These
actions signaled to automobile manufacturers that they could feel safe in purchasing Fanuc’s NC.
35 Interview, a president of CADCAM manufacturer, April 12, 201036 Japan’s Ministry of Economic, Trade and Industry, Kogyo Tokei Chosa (Census of manufacturers),
1990.

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